As we begin 2021, the economic questions mostly involve wondering when will things return to normal and what that normal will look like. The worst is behind us, but we have a way to go yet to be out of recession and a great deal further to go before we can suggest the economy is strong.
While border closures and suburban-area lockdowns remain we will continue to see odd economic happenings.
The latest retail trade figures are a case in point.
In November, as Victoria came out of its lockdown, retail spending in that state rose 22% in one month. Even the rest of the nation’s growth of 2.6% was well above the long-term median monthly growth of 0.4%.
Australia is doing quite well compared with other nations, and yet that is not saying a great deal.
Using US economist Claudia Sahm’s measure of recessions, which compares the unemployment rate with the lowest point of the past 12 months, the US is in a worse situation than Australia, but both nations are doing as badly as they were in the depths of the GFC:
While unemployment is a key indicator, given the moves to keep people employed technically through the jobkeeper payment, I think the underutilisation rate is more resonant of the real situation.
In November, 11.7% of men in the labour force were either unemployed or underemployed and 15.2% of women were so situated. While both were much lower than they were last June/July they remain well above the pre-Covid record highs:
And when using underutilisation rather than unemployment to measure recessions, in November things were as bad as they ever have been:
The situation however is not even across the country.
Victoria and New South Wales remain the worst hit, but Western Australia is essentially out of recession – and doing better than it was a couple years ago as it dealt with the end of the mining boom:
Similarly, South Australia is performing as well now as it was before the pandemic hit.
We see this also in the decline and recovery of hours worked per capita in each state. Adults in Western Australia are now working more hours per month on average than they were before the pandemic (as is the case in the ACT), while Victoria has a long way to recover:
When we look at the situation across age groups – every age remains in recession, with the 25-34 year olds in the worst shape:
So things remain bad, if better than they were.
But what can we look to as a sign that things are back to normal?
I have long been using the measure of hours worked per capita to chart the state of the economy.
Back in May I suggested that “until the level of actual hours worked is back to where it was before the shutdown, no one should be thinking about austerity”. That remains my position and while the November level of 83.9 hours is a massive improvement on the despairing level in May last year, it is still awful:
It deserves repeating that the level of hours worked in November was as bad as ever experienced since the 1990s recession.
At any other point in the past 25 years we would be viewing the state of affairs in November as a sign of an economy in complete distress.
It’s why the commentary that Australia is no longer in a recession because GDP grew in the September quarter is quite laughable.
Another aspect to keep watch over is the percentage of men aged 25-64 who are working full-time. Every recession since the 1980s has seen this level fall and not recover.
Even prior to the pandemic, the level of prime-aged men working full-time was below the post-1990s recession median of 74%, let alone the mining-boom peak level of 75.9%:
The current level is around a full percentage point lower than the pre-pandemic point, but since 2012 there has been a historically low number of men in this group working full-time.
If we are to use GDP to look at recessions and economic performance, we could do worse than use the adjusted nominal GDP growth, which involves adding annual real GDP and inflation growth.
Given a target average GDP growth of 2.75% to 3.25% and the Reserve Bank’s inflation target of 2% to 3%, we should be aiming for this adjusted nominal GDP growth to be at least 4.75%.
In September it was minus 3.1%:
And again, we should note that prior to the pandemic both GDP and inflation growth had long been below par.
It is a good reminder that, while we are doing better than we were, we need to do much more. Just getting back to where we were before the pandemic also remains a decidedly poor aim.